TAX RECLAIM

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PPI pay-outs are made up of the compensation (which is the refund of the PPI premiums paid and the interest you have paid on those premiums) and the statutory interest on the compensation, at 8% (paid in recognition that you were deprived of your money for some time).

 

It is only the second element, the statutory interest, which is taxable (in the tax year that you receive it). Your circumstances in the tax year(s) in which you paid the original premiums are not relevant.

 

Although the statutory interest element is treated for tax purposes as savings income, it is not paid gross like bank interest. Most of the time, basic rate tax is deducted at source on the interest element of a PPI pay-out before it is paid to you. The tax is then passed to HMRC on your behalf.

 

But you may not ultimately be liable to pay tax on the PPI interest element, for example, if when combined with your other savings income for the year, the total is within your Personal Savings Allowance, or if your total taxable income for the year is within your tax-free personal allowance – £12,500 in 2020/21. If this is the case, it is possible to claim back the tax which has been deducted at source.

 

You can make a claim for a tax repayment on your PPI interest using form R40 (or form R43 if you are living overseas). You can do this by giving us a call on 01254 791548, where one of our team will be happy to assist you.

 

In completing the form R40, you should input the net interest in box 3.1 ‘Net interest paid by banks, buildings societies etc, purchased life annuities and PPI payments – after tax taken off’. You should then input the tax deducted in box 3.2 and the gross amount in box 3.3.

 

You may have had other fees deducted from the pay-out, so you should ensure that the amount you are attempting to reclaim is just the tax element.

 

You also need to include on the form any other taxable income that you received in the tax year – including the state pension.

 

If you require any assistance in completing the form, please find instructions here: R40 Notes